The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this document and with our Annual Report on Form 10-K for the fiscal year ended May 31, 2008 and the consolidated financial statements and notes thereto.

In addition to historical information, this report contains forward- looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements typically may be identified by the use of forward- looking words or phrases such as "believe," "expect," "intend," "anticipate," "should," "planned," "estimated," and "potential," among others and include, but are not limited to, statements concerning our expectations regarding our operations, business, strategies, prospects, revenues, expenses, costs and resources. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those anticipated results or other expectations reflected in the forward- looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report and other factors beyond our control, and in particular, the risks discussed in "Part II, Item 1A. Risk Factors" and those discussed in other documents we file with the Securities and Exchange Commission. All forward-looking statements included in this document are based on our current expectations, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

CRITICAL ACCOUNTING POLICIES

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to customer programs and incentives, product returns, bad debts, inventories, investments, intangible assets, income taxes, financing operations, warranty obligations, long-term service contracts, and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a discussion of the critical accounting policies, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2008.

RESULTS OF OPERATIONS

    The following table sets forth items in the Company's unaudited condensed
consolidated statements of operations as a percentage of net sales for the
periods indicated.

                                              Three Months Ended
                                                  August 31,
                                            ---------------------
                                                2008       2007
                                            ---------- ----------
Net sales. . . . . . . . . . . . . . . . .      100.0 %    100.0 %
Cost of sales. . . . . . . . . . . . . . .       49.2       45.4
                                            ---------- ----------
Gross profit . . . . . . . . . . . . . . .       50.8       54.6
                                            ---------- ----------
Operating expenses:
  Selling, general and administrative. . .       21.5       23.7
  Research and development . . . . . . . .       15.3       21.5
                                            ---------- ----------
          Total operating expenses . . . .       36.8       45.2
                                            ---------- ----------
Income from operations . . . . . . . . . .       14.0        9.4

Interest income. . . . . . . . . . . . . .        0.6        1.0
Other income (expense), net. . . . . . . .       (0.1)       0.0
                                            ---------- ----------
Income before income tax expense . . . . .       14.5       10.4

Income tax expense . . . . . . . . . . . .        5.6        0.2
                                            ---------- ----------
Net income. . . . . . . . . . . . . . .. .        8.9 %     10.2 %
                                            ========== ==========

THREE MONTHS ENDED AUGUST 31, 2008 COMPARED TO THREE MONTHS ENDED AUGUST 31,
2007

NET SALES. Net sales increased to $9.7 million for the three months ended August 31, 2008 from $7.7 million for the three months ended August 31, 2007, an increase of 26.5%. The increase in net sales for the three months ended August 31, 2008 resulted primarily from increases in net sales of the Company's wafer level products, partially offset by decreases in sales of the Company's MAX monitored burn-in products. Net sales of the Company's wafer level products for the three months ended August 31, 2008 were $8.5 million, and increased approximately $2.9 million from the three months ended August 31, 2007. Net sales of the Company's MAX monitored burn-in products for the three months ended August 31, 2008 were $1.0 million, and decreased approximately $771,000 from the three months ended August 31, 2007. The Company expects that net sales in the second quarter of fiscal 2009 will be higher on both a sequential quarter and a year-over-year basis.

GROSS PROFIT. Gross profit consists of net sales less cost of sales. Cost of sales consists primarily of the cost of materials, assembly and test costs, and overhead from operations. Gross profit increased to $4.9 million for the three months ended August 31, 2008 from $4.2 million for the three months ended August 31, 2007, an increase of 17.6%. As a percentage of net sales, gross profit margin decreased to 50.8% for the three months ended August 31, 2008 from 54.6% for the three months ended August 31, 2007. The decrease in gross profit margin was primarily the result of the increased costs associated with ramping up production of WaferPak contactors. Given the current mix of products, the Company continues to believe that its typical gross profit margin will be about 50%.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative ("SG&A") expenses consist primarily of salaries and related costs of

employees, commission expenses to independent sales representatives, product promotion and other professional services. SG&A expenses of $2.1 million for the three months ended August 31, 2008 increased from $1.8 million for the three months ended August 31, 2007, an increase of 14.8%. The increase in SG&A expenses was primarily attributable to increases in employment related expenses, as the Company added support resources to address the expected growth in our business. As a percentage of net sales, SG&A expenses decreased to 21.5% for the three months ended August 31, 2008 from 23.7% for the three months ended August 31, 2007, resulting from higher net sales.

RESEARCH AND DEVELOPMENT. Research and development ("R&D") expenses consist primarily of salaries and related costs of employees engaged in ongoing research, design and development activities, costs of engineering materials and supplies, and professional consulting expenses. R&D expenses decreased to $1.5 million for the three months ended August 31, 2008 from $1.6 million for the three months ended August 31, 2007, a decrease of 10.3%. This decrease was primarily due to a decrease in project material expenses. As a percentage of net sales, R&D expenses decreased to 15.3% for the three months ended August 31, 2008 from 21.5% for the three months ended August 31, 2007.

INTEREST INCOME. Interest income decreased to $63,000 for the three months ended August 31, 2008 from $75,000 for the three months ended August 31, 2007.

OTHER INCOME (EXPENSE), NET. Other income (expense), net decreased to ($7,000) for the three months ended August 31, 2008 from $2,000 for the three months ended August 31, 2007.

INCOME TAX EXPENSE. Income tax expense was $546,000 for the three months ended August 31, 2008 and $15,000 for the three months ended August 31, 2007. A low effective tax rate was recognized for the three months ended August 31, 2007 as the company maintained a valuation allowance and recorded tax expense at the alternative minimum tax rate. During the fiscal year ended May 31, 2008 a partial release of the valuation allowance was made based upon the Company's current level of profitability and the level of forecasted future earnings. The first quarter of fiscal 2009 reflects a significantly higher tax rate than the same period of the prior year as the Company now expects to accrue tax at close to the statutory rates for the countries in which it generates income.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was approximately $6.1 million for the three months ended August 31, 2008 and $940,000 for the three months ended August 31, 2007. For the three months ended August 31, 2008, net cash used in operating activities was primarily driven by an increase in accounts receivable. The increase in accounts receivable for the three month period was primarily attributable to a delay in collection of receivables from a large multinational customer. For the three months ended August 31, 2007, net cash used in operating activities of $940,000 was driven primarily by an increase in inventories $919,000 primarily to support the wafer product line and a decrease in accounts payable $584,000, partially offset by net income of $779,000. The decrease in accounts payable was primarily a matter of timing, as the Company received a proportionately higher amount of goods earlier in this fiscal quarter than in the quarter ended May 31, 2007.

Net cash used in investing activities was approximately $2.2 million for the three months ended August 31, 2008 and net cash provided by investing activities was approximately $1.9 million for the three months ended August 31, 2007. The net cash used in investing activities during the three months ended August 31, 2008 was primarily due to a $2.0 million purchase of investments. The net cash provided by investing activities during the three months ended August 31, 2007 was primarily due to proceeds from sales and maturities of investments.

Financing activities provided cash of approximately $190,000 for the three months ended August 31, 2008 and approximately $55,000 for the three months ended August 31, 2007, respectively. Net cash provided by financing activities during the three months ended August 31, 2008 and 2007 was primarily due to proceeds from issuance of common stock from the exercise of stock options.

As of August 31, 2008, the Company had working capital of $34.4 million. Working capital consists of cash and cash equivalents, short-term investments, accounts receivable, inventory and other current assets, less current liabilities.

The Company announced in August 1998 that its board of directors had authorized the repurchase of up to 1,000,000 shares of its outstanding common shares. The Company may repurchase the shares in the open market or in privately negotiated transactions, from time to time, subject to market conditions. The number of shares of common stock actually acquired by the Company will depend on subsequent developments and corporate needs, and the repurchase program may be interrupted or discontinued at any time. Any such repurchase of shares, if consummated, may use a portion of the Company's working capital. As of May 31, 2006, the Company had repurchased 523,700 shares at an average price of $3.95. Shares repurchased by the Company are cancelled. The Company has not repurchased any of its outstanding common shares since May 31, 2006.

The Company leases most of its manufacturing and office space under operating leases. The term of the Company's current lease ends on June 30, 2015 for its United States manufacturing and office facilities. Under the lease agreement, the Company is responsible for payments of utilities, taxes and insurance.

From time to time, the Company evaluates potential acquisitions of businesses, products or technologies that complement the Company's business. Any such transactions, if consummated, may use a portion of the Company's working capital or require the issuance of equity. The Company has no present understandings, commitments or agreements with respect to any material acquisitions.

The Company anticipates that the existing cash balances together with cash provided by operations, if any, are adequate to meet its working capital and capital equipment requirements through fiscal year 2009. After fiscal year 2009, depending on its rate of growth and profitability, the Company may require additional equity or debt financing to meet its working capital requirements or capital equipment needs. There can be no assurance that additional financing will be available when required, or, if available, that such financing can be obtained on terms satisfactory to the Company.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has not entered into any off-balance sheet financing arrangements and has not established any variable interest entities.

OVERVIEW OF CONTRACTUAL OBLIGATIONS

There have been no material changes in the composition, magnitude or other key characteristics of the Company's contractual obligations or other commitments as disclosed in the Company's Annual Report on Form 10-K for the year ended May 31, 2008.